The free-market economy designates arbeitsteilig and capitalistically organized economic system, whose most important aspect is meeting supply and demand on free markets.

The free-market economy distinguishes itself thereby from the Subsistenzwirtschaft, at which production takes place only directly for the own need and not for the purpose of the exchange.

For a highly developed free-market economy a functioning article of exchange (money) is elementary, which facilitates the indirect exchange of goods and services (commodity against money, money against other commodity) in relation to a simple bartering (commodity against other commodity) only.

In contrast both to the planned economy and to the central administration economy each restaurant economics plans in principle for itself in the pure free-market economy. Production such as consumption are steered thereby via the market. An efficient Allokation (distribution) of goods and resources makes possible for the free Marktzugang for consumers and producers by competition and free price formation. It is contentious whether this leads also to an optimal Allokation of the factors of production.

History of the free-market economy

In the Middle Ages at the edge of an agrarian Naturalwirtschaft an efficient, regionally aligned free-market economy had developed. The exchange of the products manufactured by craftsmen took place on by bodies (guilds, advice etc.) organized and by personal relations a coined/shaped market. These bodies" planned "the size of the market, by limiting the number of the producers strictly. So an equilibrium should be ensured by production and Konsumation. This regularization referred also to the production methods, tools and their technical innovation. In this adjusted free-market economy there was no place for competition.

The today's capitalistic form of the free-market economy originated in to 16 between that. and 18. Century. In the absolutism a modern territorial state developed, for whose bureaucratic and military needs an expansion of the money economy became necessary. In the foreign trade the surpluses of money necessary for the central state should be gained. The mercantilism tried to dissolve therefore the local markets for the developing world market, adjusted strongly by guilds. Increasingly were subjected the craftsmen and Kleinbauern of the anonymous competition of supraregional, world-wide markets producing for local markets.

Forms of the free-market economy

Free free-market economy

With the free free-market economy, whose principle was described by Adam Smith (1723-1790), only supply and demand determine the economic activities. Smith went out with the people picture of in such a way specified homo oeconomicus, after each humans only its use pursued. The invisible hand of the market would let a use for the social whole and a reconciliation between limited goods and boundless needs develop from it.

Smith justified this restaurant economics as follows:

1. Everyone is to have the liberty to create even enterprises.
2. These enterprises are useful both to the founder, since it can increase its private property, and the economy, since the product of the respective enterprise can be used, and work is created.
3. The price of the product is fair, because it is steered by supply and demand and thus to a stable economy contributes.
4. The mutual competition of the different entrepreneurs, contributes to the improvement of the price performance ratio and the quality.
5. In order to sell its own product better, the entrepreneur will try automatically to improve its production. The economy is advanced in such a way.

Social and/or national interferences, with which supply and demand certain rules are subjected, do not take place. The free free-market economy exists in its pure form only in the theory.

As the further basis for the model the theory of rational acting of max of webers is considered to the free free-market economy. The actions of humans is the basis excluding a purpose central calculation

Characteristics of the free free-market economy are:

• Freedom of contract
• Freedom of trade
• Free occupation choice
• Private property at means of production

Social free-market economy

For the demarcation of a social responsible person form of the free-market economy of its pure development the term social free-market economy was coined/shaped 1947 by the economist Alfred Mueller Armack. The economic system of the Federal Republic is assigned to this term.

The social free-market economy (sometimes also as counterpart for the Manchester capitalism of the 19ten of century "Rheini capitalism "mentioned) was sketched into the 1950er years under Konrad Adenauer's government by the first Federal Minister for Economic Affairs Ludwig Erhard as alternative to socialism demanded of the SPD.

Mental fathers of the idea were Franz Oppenheimer and after the Second World War walter Eucken, Franz Alfred Mueller Armack as well as Ludwig Erhard (see also Ordoliberalismus). As forerunners of the social free-market economy are called: Karl von Vogelsang (1818 - 1890) coined/shaped the Christian social teachings as one of the most important social reformers of the period of promoterism. Beginnings of the social free-market economy decrease/go back to the Kathedersozialismus (see association for Socialpolitik and historical school). Substantial names are particularly Adolph Wagner, Gustav of Schmoller and Lujo Brentano, as well as outside of this direct tradition William

Erhard assumed - completely in the sense Franz Oppenheimers - a really free free-market economy would be always also social. So that a free-market economy is really free, it must be free from concentrations of power and entrance hurdles, which oppose an unhindered economic manipulation of the particular. If everyone, which wants to take goods of the market, succeeds in, offering by own productive activity of exchange values then the maximum of the possible prosperity is reached. To that extent closes Erhard Adam Smith and the political economist 19. Century on, which expected an increase of the productive motivation from acting of the free individual. However an economic system must ensure that the supremacy of particulars does not obstruct the productivity of the many. The term social free-market economy designation in the view Erhard a free-market economy with implemented system rules, which acting the particular directs into such courses that the overall system brings automatically social results out with maximally possible liberty.

Erhard had within and outside of his own party, to which CDU, for many years for the conversion of the idea not of a nationally steered Allokation of goods and services fought - although at first long not all prices were released at one time. With the law against restraint of trade, which stepped on 1 January 1958 into force, in Germany a central demand of the social free-market economy was converted. Important steps in Austria were for example trust prohibitions and laws against mean competition.

Around 1960 was the first violent criticism at the social free-market economy triumphs. The free-market economy had proven its efficiency, and the foreign exchange "prosperity for all "of minister of economics Ludwig Erhard seemed to be no more utopia: The enormous economic growth of the fifties made at the same time the integration of the refugees, refugees of homeland and Danube swabia and the development for the social politics possible. Nevertheless meant at the end of of 1963 over 62 % of the Germans, it would go to them "for the moment best ".

While the practice of the social free-market economy is to a large extent undisputed in Germany and found with the welfare state warranty their precipitation in the Basic Law, serious differences exist in the interpretation of term and objective of a in such a way designated restaurant form. Repeated for example the old controversy between Monetaristen and Keynesianern breaks open and finds its precipitation also in the appointment or Nichtberufung of economy Wissenschaftern into the circles of the restaurant ways in such a way specified.

Ecological free-market economy

Under integration of environmental protection Josef Riegler and other around 1986 free-market economy coined/shaped the term - still little common, but in its contents than guideline recognition. By ecological free-market economy a social free-market economy is understood, which become by nationally normative policy environmental goods virtual goods leave and thus make tradable. e.g. the emission trade is a form of the ecological free-market economy.

Further forms

In addition there were other forms like the socialist free-market economy. Also free-market economy models without capitalistic influences, as e.g. in the free economy, are publicised.

Articles in category "Free-market economy"

We found here 20 articles.